Correlation Between Naked Wines and LGI Homes
Can any of the company-specific risk be diversified away by investing in both Naked Wines and LGI Homes at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Naked Wines and LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Naked Wines plc and LGI Homes, you can compare the effects of market volatilities on Naked Wines and LGI Homes and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Naked Wines with a short position of LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Naked Wines and LGI Homes.
Diversification Opportunities for Naked Wines and LGI Homes
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Naked and LGI is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Naked Wines plc and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes and Naked Wines is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Naked Wines plc are associated (or correlated) with LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of Naked Wines i.e., Naked Wines and LGI Homes go up and down completely randomly.
Pair Corralation between Naked Wines and LGI Homes
Assuming the 90 days horizon Naked Wines is expected to generate 1.01 times less return on investment than LGI Homes. In addition to that, Naked Wines is 2.61 times more volatile than LGI Homes. It trades about 0.01 of its total potential returns per unit of risk. LGI Homes is currently generating about 0.02 per unit of volatility. If you would invest 9,485 in LGI Homes on August 27, 2024 and sell it today you would earn a total of 1,097 from holding LGI Homes or generate 11.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Naked Wines plc vs. LGI Homes
Performance |
| Timeline |
| Naked Wines plc |
| LGI Homes |
Naked Wines and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Naked Wines and LGI Homes
The main advantage of trading using opposite Naked Wines and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Naked Wines position performs unexpectedly, LGI Homes can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in LGI Homes will offset losses from the drop in LGI Homes' long position.| Naked Wines vs. Diageo PLC ADR | Naked Wines vs. Constellation Brands Class | Naked Wines vs. Morningstar Unconstrained Allocation | Naked Wines vs. SEI Investments |
| LGI Homes vs. Arhaus Inc | LGI Homes vs. Floor Decor Holdings | LGI Homes vs. Kingfisher plc | LGI Homes vs. Haverty Furniture Companies |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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